Why Regtech Is Key To Scalability In Financial Services

A commentary from Steen Blaafalk, Chief Financial & Risk Officer at Saxo Bank, on how the new era of regulatory requirements triggered by the global financial crisis has presented the financial industry with many challenges. These challenges are in essence why regtech (regulatory technology) has become the new frontier in the financial sector.

Regulation and technology are two of the most important mega-trends that have shifted the tectonic plates of global finance and authorities across the globe have introduced a wave of new, comprehensive and more prudent regulation. Where fintech is often used to describe solutions endeavouring to fundamentally revolutionise financial services, regtech leverages technology to meet complex regulatory obligations more effectively and hereby enhance risk management and strengthen compliance. Within a few years, regtech will be an integral part of the value chain from the onboarding process to surveillance of financial crime to regulatory reporting.

Saxo Bank is deploying new technologies such as machine learning and artificial intelligence to our regulatory framework e.g. to enhance financial crime detection procedures and automatically scan through thousands of transactions. Through machine learning, the algorithm is constantly improving and finding new patterns that would be difficult (or time-consuming) to do manually.

Why regtech is key to scalability in financial services

By Steen Blaafalk, Chief Financial & Risk Officer at Saxo Bank

The new era of regulatory requirements triggered by the global financial crisis presents the financial industry with many challenges.

Regulation and technology are two of the most important mega-trends that have shifted the tectonic plates of global finance. In the wake of the financial crisis, authorities across the globe have introduced a wave of new, comprehensive and more prudent regulation.

Banks must either adapt their operations and ride this wave of new regulation or try to patch together existing systems and workflows. The latter could work from a compliance point of view but the costs will inevitably pile up and create a gridlock for any global organisation. MiFID II, GDPR in Europe and increasing KYC and AML obligations across jurisdictions are just a few examples of what has kept financial institutions busy in recent years.

These challenges are in essence why regtech (regulatory technology) has become the new frontier in the financial sector.

Where fintech is often used to describe solutions endeavouring to fundamentally revolutionise financial services, regtech leverages technology to meet complex regulatory obligations more effectively and hereby enhance risk management and strengthen compliance. Within a few years, regtech will be an integral part of the value chain from the onboarding process to surveillance of financial crime to regulatory reporting.

Not constrained to the financial sector solely, regtech has the potential to greatly impact a variety of industries. Nevertheless, with the financial industry being among the most regulated sectors in the world, this makes for a natural breeding ground for emerging and innovative regtech solutions.

Financial institutions that over time fail to utilise technology to engage effectively with increasing regulation neglect the changing environment around them. Attempting to meet the obligations set forth by regulators with manual processes make an organisation prone to human errors and slippage in flows between key functions and departments. In effect, regtech becomes the magic ingredient that enables scalability for financial institutions in an environment of increasing regulatory requirements.

At Saxo Bank, we are deploying new technologies such as machine learning and artificial intelligence to our regulatory framework e.g. to enhance financial crime detection procedures and automatically scan through thousands of transactions. Through machine learning, the algorithm is constantly improving and finding new patterns that would be difficult (or time-consuming) to do manually.

An important factor for any financial institution with regards to regtech is to collaborate with external partners and vendors. Saxo Bank’s regtech framework is built on the foundations of several external data vendors and partners whose systems and knowledge we leverage in our own offering.

Digitisation alone cannot solve every regulatory requirement and some processes still need a human hand. Better use of regtech solutions is necessary for any financial institution in order to strengthen the value chain and scale across multiple markets and jurisdictions.

Author: Jacob WolinskyJacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and three kids in Passaic NJ. -
Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own 2.5 grams of Gold